In re Nash

• Decision Date: 28 January 1999
• Docket Number: Adversary No. 98 A 01177.,Bankruptcy No. 98 B 20036
• Parties: In re Annice NASH, Debtor. Annice Nash, Plaintiff, v. Ford Motor Credit Co., Defendant.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

228 B.R. 669 (1999)

In re Annice NASH, Debtor.

Annice Nash, Plaintiff, v. Ford Motor Credit Co., Defendant.

Bankruptcy No. 98 B 20036, Adversary No. 98 A 01177.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

January 28, 1999.

Erik A. Martin, Chicago, IL, for plaintiff.

Michael L. Sherman, Sherman & Sherman, Chicago, IL, for defendant.

MEMORANDUM OPINION ON DEFENDANT'S MOTION TO DISMISS ADVERSARY PROCEEDING

JACK B. SCHMETTERER, Bankruptcy Judge.

This proceeding is related to the bankruptcy filed by Annice Nash ("Nash" or "Debtor") on June 29, 1998 under Chapter 13 of the Bankruptcy Code, 11 U.S.C. § 101, et seq. To date no plan has been confirmed. Ford Motor Credit Co. ("FMC" or "Defendant") repossessed Debtor's car pre-petition but had not resold the vehicle at the time the petition was filed. Upon FMC's refusal to return the car, Debtor filed her complaint herein for turnover of the vehicle and for sanctions for violation of the automatic stay based upon the theory that, because FMC had not resold the vehicle, Debtor still retained a sufficient property interest to warrant immediate turnover. Defendant moved to dismiss the complaint for failure to state a cause of action. For reasons discussed below, Defendant's motion will be denied.

JURISDICTION

Subject matter jurisdiction lies under 28 U.S.C. § 1334. This matter is before the Court pursuant to 28 U.S.C. § 157 and Local General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. Venue lies properly under 28 U.S.C. § 1409. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E), and (N).

DISCUSSION

On June 29, 1998, Debtor filed her Chapter 13 petition. Sometime prior to that,¹ Defendant repossessed Debtor's 1998 Ford Contour. However, Defendant had not sold Debtor's vehicle prior to June 29, 1998, and is not believed to have sold the vehicle subsequent to that date. On July 1, 1998, Debtor sent FMC a request for turnover. FMC refused to turn over the vehicle and currently has actual possession.

Debtor argues that, as the vehicle has not been sold, Debtor retained a sufficient property interest in the vehicle upon which to base a complaint of turnover. Debtor also alleges that the vehicle is necessary for a successful reorganization. In addition, Debtor argues that Defendant's continued retention of the vehicle in spite of the existence of the automatic stay under 11 U.S.C. § 362 is a violation of that stay upon which an award of sanctions should be made.

Defendant moved to dismiss Debtor's complaint arguing that Debtor has not stated a claim upon which relief could be granted. First it argues that Debtor has no authority or standing to bring an action for turnover, suggesting that only a bankruptcy "trustee" may do so. Defendant also argues that Debtor had no right to possession of the vehicle when the petition was filed, but that her sole right was to redeem under 11 U.S.C. § 722. Also, Defendant argues that any rights Debtor has to use her vehicle are conditioned on adequate protection being provided to it. Defendant also argues that this court lacks subject matter jurisdiction in that the vehicle is not property of Debtor's bankruptcy estate. Finally, Defendant argues that it did not violate the automatic stay as Debtor had no right to possession at the time she filed her petition, and therefore its refusal to return the vehicle did not violate the stay.

Debtor argues that under her proposed plan she will pay FMC's allowed secured claim and FMC will retain the full value of its lien until the lien is paid in full. She contends that her plan further provides adequate protection in that full-comprehensive vehicle insurance will be maintained with Defendant as the loss-payee. In addition, she contends that plan payments will equal or exceed the amount of depreciation.

Debtor's Standing

First, a Chapter 13 debtor does have standing to bring an action for turnover. Under § 1303 of the Bankruptcy Code, Title 11 U.S.C., a debtor is given "the rights and powers of a trustee under §§ 363(b), 363(d), 363(e), 363(f), and 363(l)." Section 363 provides that a debtor may use sell or lease property of the estate so long as adequate protection is provided to the lien holder.

Defendant argues that Debtor cannot bring this turnover action because § 1303 does not give a debtor powers under § 542(a) dealing with turnover of property to the estate.² Defendant's sole authority for this proposition is Matter of Brown, 210 B.R. 878 (Bankr.S.D.Ga.1997). While Brown dealt with a pre-petition repossession, the focus of that case was on damages sought for an alleged violation of § 362. After repossession, while under creditor's control, the debtor's car was involved in an automobile accident and was totally destroyed. The debtor was not seeking turnover under § 542(a). However, the opinion stated in dicta that a Chapter 13 debtor lacking authority to seek turnover under § 542(a), nonetheless had ability to seek return of a vehicle repossessed pre-petition under §§ 1306(b), 363(b)(1) and 363(e). The dicta on an issue not presented cannot be given great weight.

Moreover, no additional precedent is found to support Defendant's proposition. Rather, the few cases that discuss the issue of a debtor's authority to seek turnover under § 542(a) have recognized that authority. See In re Radden, 35 B.R. 821, 826 (Bankr. E.D.Va.1983). Radden found that a debtor in Chapter 13 was able to use § 542(a) to recover property where the property is of a sort a debtor may use under § 363. "Section 1303 provides the debtor with the rights and powers that a trustee would have under Chapter 7 or the debtor in possession would have under Chapter 11. Consequently, the debtor is a proper party to seek turnover pursuant to § 542(a) because the property that the debtor seeks to have turned over is property that he as debtor may use in the ordinary course of business." Id. See also In re Robinson, 36 B.R. 35, 36-37 (Bankr. E.D.Ark.1983) (extending Supreme Court holding in United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983) to Chapter 13 cases); Matter of Williams, 44 B.R. 422, 424 (Bankr.N.D.Miss. 1984); In re Cardillo, 169 B.R. 8, 11 (Bankr. D.N.H.1994).

Nature of Debtor's Interest

Property of the estate includes all legal and equitable interests of the debtor in property as of the commencement of the case "wherever located and by whomever held." 11 U.S.C. § 541(a)(1). The Supreme Court views this not as a limitation of what is included in the estate but as a broad, inclusive definition. United States v. Whiting Pools, Inc., 462 U.S. 198, 103 S.Ct. 2309, 2312, 76 L.Ed.2d 515 (1983). Property of the estate inter alia includes property in which a creditor has a secured interest. Id. 103 S.Ct. at 2313. "Although Congress might have safeguarded the interests of secured creditors outright by excluding from the estate any property subject to a secured interest, it chose instead to include such property in the estate and to provide secured creditors with `adequate protection' for their interests." Id. Moreover, the Supreme Court has determined that property of the estate includes property in which the debtor had no possessory rights at the time the bankruptcy petition was filed. Id. at 2313-14 (citing 11 U.S.C. § 542(a)). Thus, "the reorganization estate includes property of the debtor that has been seized by a creditor prior to the filing of a petition for reorganization." Id. at 2315. The creditor remains entitled to adequate protection for its interests and to certain other rights enjoyed by secured creditors. While the opinion said that such a creditor must seek the protection of its interest "according to the congressionally established bankruptcy procedures, rather than by withholding the seized property from the debtor's efforts to reorganize," (id. at 2317), Whiting Pools also stated that property seized pre-petition was property of the bankruptcy estate and could be subject to turnover (while not specifying whether this principle would apply in a Chapter 13 case). Id. at 2315 n. 17.

Still, most bankruptcy and district court opinions have decided that a Chapter 13 debtor retains sufficient interest in a vehicle that was repossessed prebankruptcy to maintain an action or motion for turnover. See Spears v. Ford Motor Credit Co., 223 B.R. 159, 163 (Bankr.N.D.Ill.1998) (collecting cases); see also In re Pluta, 200 B.R. 740, 742 (Bankr.D.Mass.1996) (finding car remained property of estate because debtor still had right to redeem); In re Brooks, 207 B.R. 738, 741 (Bankr.N.D.Fla.1997) (finding creditor had obligation to return car upon learning of bankruptcy); In re Massey, 210 B.R. 693, 696 (Bankr.D.Md.1997) (finding creditor could keep car only until debtor provided adequate protection); In re Attinello, 38 B.R. 609 (Bankr.E.D.Pa.1984); but see, In re Lewis, 137 F.3d 1280 (11th Cir.1998).

FMC cites to Lewis, id., as authority for the proposition that, unless Debtor intends to exercise her right to redeem the vehicle under 11 U.S.C. § 722, she is not entitled to a turnover of the property in issue. However, FMC's reliance on Lewis is misplaced. In Lewis, the Eleventh Circuit opinion found that under Alabama law a debtor only had a right of redemption, and therefore the vehicle in question was not property of the bankruptcy estate. The opinion reasoned that, when the Chapter 13 case was filed, the debtor then "did not retain title, possession or any other functionally equivalent ownership interest in the repossessed automobile." Id. at 1284. However, Lewis really "looked to Alabama common law, and decisions finding that a debtor must have both title to and possession of a property in order to maintain an action for conversion. . . ." Spears, 223 B.R. at 164. Based on Alabama law, "Lewis made a judgment that the debtor's rights were not meaningful." Id.

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